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A taxing matter

The Temporary Wage Subsidy Scheme ends next week — so when will you have to pay back all that income tax?

A top accountancy body has called for definitive guidance from the government.

AN ESTIMATED 365,000 Irish workers are set to come off the government’s Temporary Wage Subsidy Scheme (TWSS), which draws to its long-signalled conclusion next week, on Monday, 31 August.

From then the government is switching to a new programme, dubbed the Employment Wage Subsidy Scheme (EWSS).

The good news for any employees moving from one scheme to the other is that their employer will once again be paying income tax on their behalf when the EWSS comes into force.

As part of the TWSS, employers have not been deducting tax payments from their employees’ wages for the last 22 weeks, resulting in an accumulation of liabilities that have to be paid back, creating another potential headache for workers.

Although finance minister Paschal Donohoe indicated yesterday that employees won’t have to worry about it until at least next year, Ireland’s top accountancy bodies are now raising alarm bells about the prospect of already-stretched subsidy recipients being landed with tax bills down the line.

In a pre-Budget submission, the Consultative Committee of Accountancy Bodies Ireland — an umbrella group for various Irish accountancy bodies including Chartered Accountants Ireland and CPA Ireland — has called for “definitive guidance” on the matter.

Speaking to yesterday, Norah Collender, Professional Tax Lead at Chartered Accountants Ireland, explained the situation in detail.

In the hands of the employee

The government has made clear from the start of the scheme that the income is taxable and that it’s “in the hands of the employee”, Collender explained.

But according to her, the accountancy profession is increasingly aware of the “anxiety” this is causing for employees.

And “rightly so”, she believes, because tax can be confusing stuff.

Employees have enough to be doing just getting on with their day-to-day jobs. Tax is complicated. They would have come from a position where all their tax was looked after through the payroll and paid out through the PAYE system, so this is a brand new journey for them.

“Under the temporary wage subsidy scheme, subsidy payments that the employer got from the government — which they, in turn, paid out through payroll to the employee — were not taxed in real-time. So no USC or income tax was applied,” she explained.

If you’re an employee whose wages have been subsidised under the scheme, the Revenue will review of your situation at the end of the year to see how much tax you owe.

But don’t panic — the taxman isn’t going to knocking down your door, demanding immediate payment of your unpaid liabilities.

While she said that they will obviously “take a cheque if you’ve got it,” Collender explained that the Revenue has been “very consistent” in its message that “they have a practice of adjusting tax credits and refunds to collect tax liabilities from PAYE workers so you don’t pay money out of your pockets”.

This means that for the vast majority of people, the unpaid tax will be collected through adjusted tax credits and rate bands over a number of years.

At the end of this year, the Revenue will see “if there any additional credits or tax reliefs that the employee can offset against that tax liability that has been building up,” Collender explained. 

So you’re not going to have to pay it back all in one go.

And what’s more, Collender said, the Revenue has confirmed that those rate band adjustments won’t come into force until at least 2022.

Upfront and direct

The main problem with all of this, according to Collender and the various accountancy bodies, is that there is still a degree of confusion among employees and their employers who are fielding questions about this every day.

Revenue has, to its credit, “made reference to how it plans to collect this tax in various publications on its website”, she said.

But in its pre-Budget submission, the Consultative Committee of Accountancy Bodies Ireland (CCABI) said that it wants even clearer guidance to be made available.

“We’re looking for something upfront and direct,” Collender said, “even just basic information about what the plan is so far.”

The other issue is the impact that rate band and tax credit adjustments will have on take-home pay whenever the taxman does start clawing back those 2020 liabilities.

In its submission, the CCABI said that if an employee receives €350 per week for 22 weeks, this would amount to €7,700 in untaxed income that must be dealt with by the employee over the coming years.

“The Revenue has indicated that they will consider spreading that over a number of tax years to be sure that there’s no undue hardship,” Collender explained.

“Generally, they would spread it out over four years but we’re asking that they look at spreading it out beyond that because this is an unprecedented situation.” 

Her advice to anyone still concerned about their liabilities?

“They could look at their payslip and see how much in their paycheck is allocated to TWSS,” she said.

“From that, they can add up and see just how much untaxed income has accumulated to date. Then work out, assuming they’re a standard rate taxpayer at 20%, what is their potential tax liability on that basis.” 

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